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Sunday, November 13, 2011

DOLLAR TEETERING ON THE ABYSS

We all better hope I'm wrong on this one, but I think the CRB just put in its three year cycle low in October. I'm also afraid that Bernanke has done irreparable damage to the dollar. If I'm right about both of those assumptions then we are on the brink of a historic inflationary period.

I've marked the major three year cycle bottoms in both the CRB index and the dollar in the chart below with blue arrows. (Actually the CRB cycle tends to run about two and half years on average.)

The dollar is now a great risk of forming a left translated three year cycle. A break below the October 27 intraday low would initiate a pattern of lower lows and lower highs of an intermediate degree.That is usually a sign that a major cycle has topped. If the dollar's three year cycle has topped after only five months we will be at great risk of a severe currency crisis in the fall of 2014 when the next three year cycle low is due.

Even more concerning is if the CRB cycle has bottomed. If it has then commodities are poised for a huge surge higher during the next two years as the dollar deteriorates.

The next two weeks are going to be critical for the dollar. It must hold above the October 27 low. Failure to do so would indicate that the cancer has now infected the currency markets, most specifically the US dollar.

If this scenario unfolds it has the potential to drive the bubble phase of the gold bull market.

I posted this on the weekend report but didn't see you reply, on this topic.

Is it possible that the USD just chops around or does it have to either go up aggressively (out of 3 year low) or dive aggressively (LT 3 year cycle)? If it does chop, what would you think that would mean for gold and equities? Chop as well?

I'm just too young to understand heavy inflation and really cannot see $10 a gallon gas in the next 2 - 3 years.

If the dollar does roll over like this, what would your hypothesis be for a gallon of gas in 2014?

Oil has outpaced gold by a substantial amount since October 1 or thereabouts.

If the next 2 weeks confirm that the CRB has bottomed, might you consider taking a position in USO or some such ETF? The CRB can't fly without oil going to the moon, can it? Gold is only 6% of the index, tied with soybeans and several others. Oil is 23%.

I know you often say oil is a has-been, but I can't ignore its recent outperformance so I had to ask this.

I thought the method to receive text messages re. Gary's updates would be on the site, but I couldn't find it. Could someone please remind me on the text to send whereby I could receive those updates? Thanks.

I have absolutely no idea what is going to happen but I will share a few thoughts I've had...

IMO the dollar looks eager for its last hurrah in the sun before the tables are turned and Europe moves into pole position to dominate the world. They will milk this 'crisis' for all it's worth until their ducks are in a row. I'd give it another 6 months to 1 year.

The dollar low in May was quite a low. Since then the dollar has been consolidating.

Israel is key. When will they attack Iran? That event may finally prompt the USA to pull support from Israel, especially if they use a nuke. Pulling support from Israel will seal the USA's fate. Israel must be 110% confident that it can stand alone. My guess is that they will wait until the last possible moment. So there is still some time left. Iran is not quite there yet.

The dollar has basically been chopping back and forth for the last three years even though we've had some big moves in both directions.

One could make the case that the last three year cycle was nothing more than a big consolidation in an ongoing secular bear market. If that's the case then the current three year cycle should see the dollar put in another big leg down.

Cat,It's probably too late to jump on oil now. Once everyone has noticed the outperformance then it's usually too late. You need to buy an asset before the move starts.

Personally I think it's time for the mining stocks to deliver a huge surge to the upside. So rather than chase oil, which has already had its move, I would rather stay invested in the sector that I think is going to produce the next big move.

Very bold statement and many here are on the right side of that trade. However, it seems something always comes out of left field that changes things. It's like big Ben is reading this blog and goes " oh yea, I don't think so"

You had said for new purchases at this point (especially if one is not invested yet) would be to wait for a swing to form (not sure if it was on gold or the dollar). That was late last week. Has this occurred and would now be a good time to enter initial positions? Thanks...

I'm not using the USD index to determine what I do with miners, but if I had to wager on the confetti, I'd bet this observation of Gary's is most probable:

"One could make the case that the last three year cycle was nothing more than a big consolidation in an ongoing secular bear market. If that's the case then the current three year cycle should see the dollar put in another big leg down."

People sitting in cash will get stung eventually, and if they cannot get invested now they are kidding themselves that they'll flee the USD into gold when it's $2,500 or more. We've seen people follow gold for years, while never taking much profit from the bull.

SB,Now you are talking about things you know nothing of. I have only mentioned one trade of any real size on this board. You have no idea what I'm doing right now. But go ahead and keep shooting your mouth off if it makes you feel like a big man.

SB,I still own AGQ. I hedged with ZSL. That hedge did not perform well, but by hook & crook I sold/bought/sold ZSL several times and also sold AGQ covered calls several times. That trade is now nearly break even, but I admit it took a lot more work than I thought it would.

I don't think disagreeing with Gary is the same as insulting Gary. I see a lot of guys insulting Gary on this blog and I don't think that's right.

I too ( in trading currencies only) see this recent "dollar action" as a bit unsettling.

And yes....the move off the bottom has been quite slow with little conviction - but - still heading in the right direction as per most of my charts (however choppy) with several 'daily closes' now above the 200 SMA now (barely) turning upward.

So....ya....they suuuuure arent makin it easy - and as you;ve suggested the next couple weeks should be very very telling.

I imagine some kind of "big news" out of Europe (perhaps China stepping in etc...) would likely seal the deal (as we've recently seen - markets wanna go up up up like mad once this is over with) so......onward.

I too ( in trading currencies only) see this recent "dollar action" as a bit unsettling.

And yes....the move off the bottom has been quite slow with little conviction - but - still heading in the right direction as per most of my charts (however choppy) with several 'daily closes' now above the 200 SMA now (barely) turning upward.

So....ya....they suuuuure arent makin it easy - and as you;ve suggested the next couple weeks should be very very telling.

I imagine some kind of "big news" out of Europe (perhaps China stepping in etc...) would likely seal the deal (as we've recently seen - markets wanna go up up up like mad once this is over with) so......onward.

SB - I read all your posts, you don't seem to think there is a tight connection between gold and USD. What do you watch for gold's action? Just gold futures? Commodity index? Just picking your brain, not being argumentative. Thanks!

Sure there is a connection between the dollar and gold, as one is purchased with the other. It's the focus on the USD index that throws people off, as the index is just the dollar vs other confetti.

We've already seen the USD index and gold move together in the same direction enough of the time that focusing on the index provides no edge. One has to predict where the USD index is going, THEN also guess if the index and gold will move together or inversely. Too many moving parts to provide a reliable edge.

For example, the USD index might rise in a "flight to quality" but gold might go up for the same reason. The way I see it, gold is going up vs the actual dollar (not the index) and that's all I need to know for the trade. In short, the USD index is not the dollar, just a measure against other flawed currencies (not gold).

Of course, there are times that the USD index will rise and gold will drop, but correlation is not causation.

I also would guess we'll see less of this typical relationship as the bull market progresses. Eventually, all anybody will care about is price of gold in their currency, totally neglecting the USD index.

For the last year I haven't paid much attention to the USD index. I'm focused on metals/miners for now, but if I were trading currency, I would most likely trade only pairs.

We might even see the USD index just meander around in a wide range for years, while commodities rip higher. If each central bank prints the equivalent of $2 trillion in their own currency next week, the index would stay the same, but the action would be very positive for gold with so much more confetti out there. :)

I think they will, maybe not from this moment, but certainly from these levels.

I'm leaving Wed for 18 days(+/-) vacation and my ideal situation would be to return and see the $HUI around 570, so that I could add more. A week or two of sideways drift would be alright in my book. If they just rip from here, I can live with that too, but I'm no longer at all concerned about a collapse into the end of the year. Patience will be rewarded as long as we don't force an error by watching every wiggle. :)

Thanks intelliblue2000, but I'll have a computer to check in on quotes and maybe place a few orders here and there.

Bullion Trader,

I suppose it depends on how much you already own, if I didn't have any I would nibble but since I'm closing in on my total % risk I'm willing to lose, I'll wait to add into a good shock lower. Maybe two good size down days in a row, or an oversold stochastic on the daily charts, something like that.

As far as a price on GDX, I'd be happy to pick some up if it pulls back to the 50 MA around $59+. If that were my first purchase, I'd plan on giving it plenty of room (smaller position) to avoid any shakeouts. I'd put my stop $6 below my entry point.

I'm looking at the 3-month daily chart for GLD. I try not to read too much TA into them, BUT dang, it sure looks like a cup with handle forming on lower volume. I am hoping for one more push higher before the DCL... Maybe I should just back off on the koolaid.

I think 50 million abortions performed in this country sealed USA's fate, not whether we support Israel's corrupt regime, if they decide to get us into another war. Bibi Netanyahu is going to reap the whirlwind.

My posts hang in for about 3 seconds and then google removes them as spam. It's a crap system here. I think i need gary to 'unspam' my comments and then google won't keep doing that (just like how the email systems work).

Damage done (USD)agree...inflation is without doubt a very big part of our short - medium term future ...agree. Gotta watch the downward trending channel on the CRB though,which has been the move for the better part of this year. For your theory to stand ..then it will need to breakout to the upside of that channel.....???

Miners are the place to be. The analysts have them priced using $1200/oz metric. Still unloved but soon to be in high demand. Watch the HUI. It will outpace the CRB and GOLD if they both turn up. My best guess is somewhere north of 50% increment. The Q1 12 will tell all.

My guess is we will see weakness next week with options ex. on 22nd. With Thanksgiving also that week, probably a raid and a chance for those here looking for a opportunity to get in.

BTW - I don't understand Gary's thesis of not owning physical now, see his quote below. What do you think spreads are going to be like when everyone's trying to get in? Events happen that you or I can't predict. Thinking you can time a physical purchase is crazy. It's like buying emergency supplies in case of earthquake or other disasters. The time to buy is before the event. Doesn't hurt to own some, especially if you believe in the bull.

Gary said...BBPOINT,The only reason to buy bullion would be if you think we are at risk of hyperinflation in the near future.

That's unlikely to happen until at least 2014 so there's no great urgency to buy physical and deal with the large spreads associated with that market.

From my understanding if you want to simply maintain your current value of wealth, you would buy physical gold, however if you want to increase your level of wealth, then trading would be get you there.

All big cycles run the gamut from extreme undervaluation to extreme overvaluation and back. Gold will be no different than any other time in history. At some point it will reach truly stupid price levels while stocks will become historically cheap.

That's the point where you have to trade in your gold for stocks no matter what the fundamentals tell you at the time. All that will matter is that stocks are way too cheap and and gold is way too expensive.

Thanks for responding. The CDE one really doesn't have a "top" but I swear the bottom side looks like a symmetrical diamond bottom.

Do you use Ichimoku clouds at all? They are intriguing me to learn more about them and I have pulled down some good info on the web. I'm just not seeing an edge from them either at this point (see many bullish patterns fail and bearish patterns reverse sharply).

I give you major props for buying in the miners on Oct 4th. That was truly a "buying on weakness" event - the marks of a good trader.

Question for anyone that uses The Linn Group and Ira Epstein's charting software...

Each day Ira uses what I think he calls a "slow" stochastic and in one of his videos he indicates he uses a K of 5 and a D of 3 (5,3).

However, I am not able to reproduce this using these settings, meaning my Slow STO lines look nothing like his.

Reason I am asking is because he focuses on when the Slow STO is "embedded" or 3 consecutive days with both lines over 80 and his videos don't come out until 5 or 6pm EST, I'd like to chart in real time.

I tried tinkering with the numbers but just can't get close, even using the futures contract instead of $gold.

Actually my posts were being hit as spam predominately because I didn't go through the "give us a phone number" authorization of google. After a certain number or type of posts (without giving them a phone number) they kill the account. I did the phone number thing on the account this time so the 'unspam' you just did should be the last of it.Thanks.

Even after you ublocked multiple of my comments new ones are still getting routed to spam (as happened to people bitching to google there). Maybe unspamming a few more of my comments will work. Maybe not. We can try. I guess if it ultimately doesn't work I will try creating another login.

Looks like the trick is for you to unspam a number of my comments again and again until the filters finally learn I'm not a spammer. Usually filters like this will switch on the first or second 'unspam' click, but googles are not. So we can try it a bit loner i guess. Sorry for the hassle. I hate it too and wish you were not on blogger/google (for a whole host of reasons), but you've already weighed in on that.

The one day dip occurred way too early in the daily cycle for the dollar to have put in its cycle low yet. If it can continue to push and make a higher high then we will just have a right translated cycle, but one that is getting deep into the timing band and should move down strongly soon.

based on others experience does gold tend to hold above the 10ma as it moves out of intermediate cylce low? seems like there are few exceptions like march 2011 when daily cycle bottoms move below this ma.

silver looks good today. It consolidated at the 30-32 for a good while now its moved to the 34 dollar area. I think this type of action makes it less likely we will go close to #30 again even if a DCL comes in the metals. The odds are much better staying long especially if you have a good entry at the $32 level.

Triangle on gold here last few days. We look like we are about to launch another $100 higher to 1850 or so (we have had 2 legs up so far, each about $100; I'm not an elliott guy but sometimes it has merit and the pattern of gold on this wave is classic elliott and argues for this next wave of $100)

I'll get into my trading last month or so (I was just taking a break from the board. No RAZ I didn't blow my account out by far), but I'm currently 4x long gold with about 0.5x silver (most of it futures on both) from that sharp pullback low on Nov 1. That's also where my stops are if something goes wrong.

GLD options expire this friday and the sweet spot to take out the largest group of puts and calls is $170

(I do not look at ALL the options in existence. I simply look at what is reasonably 'close' to where GLD is trading NOW and assume the guys writing the options can move things SOME but not 'superman unlimited' amounts. I think they can move it to 170 if they try (lower) by fri, but the EU is looking like a mess and I've already said we appear to be headed higher, so I'm not so sure).

PS: GLD of 170 would be gold of about 1750 which would be a nice round number to likewise expire at next week when the FUTURES gold options expire. Or it could be 1800 or 1850 higher (likly one of these round number we are shooting for).

Silver is simply impossible to trade on high leverage without a profit buffer on something else.

So what I do (same as earlier in the year) is go nuts on gold, which trades VERY well and is VERY liquid and then....if the leveragad gold position is profitable, use the profit buffer to comfortably add in silver (on pullbacks) as we climb towards blowoff tops.

Note that while silver might rebound or outperform gold here on a RECOVERY basis, it is indeed a bit 'broken' as gary indicates from the crashed parabola. Too many walking victims for silver to seriously start screaming ahead.

Yes, silver has outperformed here and there over the last month or two, but there is no clear, smooth, continous outperformance anymore unlike the end of 2010.

Eventually the chart will stabilize and a true direction will become clear but for now I can easily (that is the key word there, easily and more safely) get more leverage and gold futures than worrying about silver - even if it outperforms.

For example, there woudl be no WAY i could have gotten 4x silver with a 1-2% stop (as I use when buying) without sheer luck. But it worked quite well for gold.

In 78-79 there as a point in the bull mkt where there was one final sharp pullback and then gold simply took off and didn't look back.

ABCD whatever. It didn't matter.Not many pullbacks either.

I think that is where we are in the gold market. I think recognition has now set in worldwide as to how bad things are and where this is headed (massive printing and/or BK's all around). In either case you want straight metal. Not paper.

I think that the selloff in sept was that equivalent sharp selloff shaking out a final batch of people and I think that from here on out (at least for a while until we are significantly higher) there won't be huge selloffs. Congestions? Triangles? yes. Selloffs I'm not so sure.

That is my opinion and I'm NOT betting the farm on it. I have stops and a strategy to trade if we do go lower - as any good investor should, but it is my belief on where things are heading.

The post was more about how I don't think we get ABCD much anymore and how I also think we won't have the same type of pullbacks as before.

My argument against 'paper' as per mining stocks is simply based on waiting for them to 'show me the outperformance'.

I don't have as much of an argument against the use of 'paper' such as futures to trade and make money, although I agree that you should have a physical portion as protection through either CEF or PHYS or something like that in case things fly apart.

At Ease,>>Question, does anyone buy gold/silver from Perth Mint of from goldmoney.com?

I don't know if you got an answer to this. I HAD precious metals at Perth Mint. It was unallocated, which scared me, so I cashed out there and rebought with another company, storing some in Britsh Columbia and some in HK. These ARE allocated and I am supposed to be able to have the exact purchases I made shipped to me or I can pick them up. As far as Goldmoney.com is concerned, I do have a small account with them which is currently in gold. It is NOT allocated but the guy who runs it, Jim Turk, is a good guy. Also, it is super easy and fast to sell the metals and transfer to your personal account if you need the money. No more than 2 days total.

Gary,>>But the spreads and liquidity are much better in GLD than in physical gold.

I don't know what you mean by the spreads being much better. If you buy a 1-oz gold coin, you will pay a premium of maybe 3.5% and on the sale, probably receive a tad under spot price. If you buy a kilo, you probably will pay just under 1% of spot. Of course, there are fees for storage or if you have it delivered, you need to keep it safe, which is a bit of headache, but not nearly as much as with silver.

Leilani,Well, you have to pay a storage fee, of course. But unlike most other depositories that I have researched, this one does NOT base the storage fee on a % of the value of the metal. Try www.goldsilver.com

Wolf, I read on the premium site that you are going to see an alternative Doc for your condition? I am curious as to what kind of alternative you are investigating? I just found out last week that I have a not so nice medical condition and am also exploring methods outside the mainstream.

A few years back, I wanted to buy gold and store gold via Perth. I wired a relatively large sum to them. I waited until the money was in my Perth acct so i can placed a buy order. Guess what? They couldn't find my money. It took them over a week to credit my account after the funds were wired. It scared me a bit. Perth is bit of a distance from California. So, I had them wired the money back. I also have an account with GoldMoney with nothing in it. I hestitate with GoldMoney only because the storage fees are high. It is based on a the price of gold and it is a certain percentage.

Wolf, I read on the premium site that you are going to see an alternative Doc for your condition? I am curious as to what kind of alternative you are investigating? I just found out last week that I have a not so nice medical condition and am also exploring methods outside the mainstream.

I have decided to make this my last stand. Hope like acres of diamonds. The one procedure is QRNT. Quite new and I have luckily one of the best. But he does a lot else and talks to another that has a patient similiar to me. Do a lot with just vials related to body parts or systems like lymphatic etc. Besides he is a great chiropractor for adjustments which I always need from time to time. The goal is to get the brain communication to do whatt it is suppose to do. Obviously one has to get the immune system ---adrenals---liver---etc doing what they are suppose to do. Like I say this is it for me. I have been more places than one could ever imagine. I am after the first of the year go back on a gluten/sugar free diet. I also have 2 Bio Mats to help with pain. A Rife machine---seems to settle me down. I am a big believer in Himilayn Salt. Should mention that Chiro is using some new supplements(herbs) that make me stronger. Other similar outdated NAET-JMT---NMT is newer. If you do not mind, could you let me know where in general you live.Please feel free to chat---as I would never ignore but keep in mind I might miss your post so do it again.I will keep you in my prayers.

Europe is not going to dominate the world. Aside from the worst demographics in the history of man (some European countries will lose a third of their population by the middle of the century), they have too many structural problems (labor inflexibility for one) to compete with Asia and the United States.

Gary said...

"It's probably too late to jump on oil now."

Long WTIC / Short Brent should still have several dollars to go as the premium disappears. This was caused (in part) by a lack of storage at Cushing, which is slowly getting resolved.

Shalom Bernanke said...

"If each central bank prints the equivalent of $2 trillion in their own currency next week, the index would stay the same"

That's completely wrong. The differences in the sizes of the monetary bases means that $2 trillion from the Bank of Canada or the Sveriges Riksbank would affect the relative values of their currencies far more than $2 trillion from the Fed or the ECB.

Thanks for the reply Wolf. I hope it is successful for you. I am in Georgia, buy am looking at receiving treatment in California. I will know more on Thursday, but I am hoping I can wait until the first of the year before starting any treatment. I suspect it will be two or three months living in Cali undergoing treatment. I suppose the won't be so bad except being away from the family.

JaketheFlake and Leilani,Thanks for your answers on Perth, I was reading a book by Peter Schiff and he recommended buying through is company from Perth Mint or what he expects to be a common practice in banking Turks site goldmoney.com as places to buy gold to hold. I think for now, I will stick with what works, Gary. I have some physical just for Peace of Mind if all hell breaks lose, but otherwise, I think everyone is out to make money on fears. I think Gary is the only one with the smarts to know how to make the money on the fears in this market to be set for the future.

High 5, From experience. Start small, single contract (I only buy the mini gold). Buy at bottoms (cycle lows) twice I have bought the tops anticipating the big run. Nope. had to wait for it to come back up or cut the losses at the higher high. If you happen to buy too high and it drops, don't panic it's a bull market, just wait it will come back up. or cut your losses as small as you can and just get out at the higher high. Most of all, make sure you have a cushion, twice as much as you are trading. I got a margin call by buying a top with not enough cushion. So I think I have covered all the rookie mistakes. Other than that, make sure when you buy you know your exit either way. I don't use the stops unless I just want to go to sleep and not watch all night. JUST BUY AT THE CYCLE BOTTOMS and you should be fine. Made a good amount on the last run up. I sit for weeks without trading in this account. Just wait for the cycle bottom set ups.

* you mention a cushion of 2x what's being traded -- do you mean 2x the margin requirements or 2x the value of the contract? I assume you mean the latter but am then wondering how you got a margin call even when buying at the top?

* what dates do you target, especially considering you're just looking to buy and sit vs. trade in and out? do you buy further out with the goal of holding through a daily/intermediate cycle or buy front month and rollover each month?

smt_troll,If you are trying to predict the future it might profit you to read the book famous for predicting the future. Europe is rising, not falling. The middle east is rising, not imploding. The USA will enter decline sooner or later as we are absolutely addicted to cheap oil and cheap oil is in decline. The crisis in Europe is not a real crisis. It's a manufactured power grab. Demographic problems or not, the old Roman Empire is rising again.

You sure have come a long way using TA now Gary,, as someone who used to dismiss it completely as just "squiggly lines on a chart" as you use to refer to it. Good for you,, dont agree with either of your analysis on CRB or the dollar tho. Glad your still at it though, Its been pretty profitable these last few years, and seems you've done well.

My observation is not "completely wrong". I was not arguing where the dollar goes relative to other confetti. My point is that if all central banks print more simultaneously, the USD index is not nearly as important as what the implications are for metals.

The fact is the USD index is less relevant every day, especially when trading gold. This has been the case for some time now. If you believe that watching dollar futures is giving you an edge, I'm all ears.

In terms of contract dates, I take it you bought the Dec. contract around the recent cycle low in Oct., so you purchased 2 months out? Any other helpful tips about how to think about what dates to select?

I understand there's no theta decay as with options but you do often have contango in futures based on implied borrowing/interest rates that are priced in above and beyond spot price, and which decays until maturity.

Also, I'm guessing that the further out the less often you'll have to roll futures over assuming you don't actually want to take delivery upon contract expiry.

"I have come out of retirement for this one off, once only, speech to warn that the good ship 'Life As We Know It' is sinking.

Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way."

Also, Alf Field considers the possibility for a correction in gold prior to its big move up:

"At the date of writing (7 Nov 2011), gold has recovered to $1767, which is a 61.8% retracement of the loss from $1913 to $1531 (-$382), a typical size for this type of recovery. That leaves open the possibility (40% probability?) that gold will have another dip to test the target areas mentioned. The higher the price goes above $1767, the greater the probability that the low was in at $1531."

Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such position.